Credit risk transfers

Fannie Mae and Freddie Mac transferred a substantial amount of credit risk to the private sector through both single-family and multifamily market transactions in the first half of the year, with activity expected to rise in 2019, according to the Federal Housing Finance Agency.

When the mortgage giant will be released from government control is anyone's guess, but the company's third-quarter report shows signs of an easier transition.

The structure reduces counterparty risk in the GSE's benchmark Connecticut Avenue Securities program; it also expands the investor base.

The mortgages being reinsured are more seasoned than most other deals rated by Morningstar, which helps offset the risk of lower initial weighed average LTV.

The REIT is purchasing another $500 million of credit risk transfer notes through Fannie's L Street Securities program; this is its first deal rated by Fitch.

The GSE recently transferred $166 million portion of risk on $11.1 billion of loans via contracts with seven reinsurers and insurers; it plans to come to market two or three time a year going forward.

The $653 million Bellemeade Re 2018-2 is being rated by both Fitch Ratings and Morningstar Credit Ratings, though Fitch sees more risk to the transaction.

Freddie Mac produced modest second-quarter results, reflecting a stabilizing business that CEO Donald Layton compared to a utility company.

Nonbank mortgage-backed securities servicers increase their exposure to agency loans as the housing market distances itself from last decade's crash, according to Fitch Ratings.

Oaktown Re II is National Mortgage Insurance's first rated transaction, according to Morningstar; it reinsures $5.47 billion of policies on mortgages with a total balance of $30.12 billion.

A Fannie Mae test to handle the private mortgage insurance process for lenders may raise concerns that it's going outside the scope of its secondary market mission. But the effort reflects its mandate to explore new credit-risk transfer alternatives, a company executive said.

Fannie Mae's first-quarter profits were enough for it to rebuild its minimum capital buffer and pay the Treasury Department dividend after being forced to take a draw during the previous fiscal period.

If Freddie Mac's credit-risk transfer activities continue to grow, mortgage lenders could eventually see a reduction in the guarantee fees they pay to the government-sponsored enterprise, according to CEO Donald Layton.

Essent Guaranty is marketing $360.75 million of notes linked to the performance of a pool of residential mortgages that it insures; its following in the footsteps of Arch Capital.

The success of the government-sponsored enterprises' credit risk transfer programs shows that they can be the basis for housing finance reform.

Participants at the Structured Finance Industry Group conference in Las Vegas say that future deals could be linked to the performance of jumbo, as well as conforming loans.

A group of reinsurers has committed to provide up to $650 million of coverage for credit risk on some $21 billion of 30-year, fixed-rate loans that the government-sponsored agency will acquire over the next two years.

Fannie Mae's serious delinquency rate climbed to a high not seen since March 2017, but remained lower than it was 12 months prior.

The jump is from a very low base; absolutely delinquency rates on mortgages referenced in GSE credit risk transfer deals are still likely to remain under 1% and much of the effect is likely to be temporary.

Called Structured Agency Credit Risk Securitized Participation Interests, the new securities are backed by mortgage loans, and are not general obligations of the government-sponsored enterprise.